InfoTech USA, Inc. Exhibit 10.4 to Form 8K




Exhibit 10.4



COLLATERAL ASSIGNMENT
OF NOTE 



        THIS
COLLATERAL ASSIGNMENT OF NOTE (this “Assignment”), dated as of June 29, 2004, is
made by and between INFOTECH USA, INC., a Delaware corporation (the “Assignor”),
and WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation (the “Assignee”).
Capitalized terms used but not otherwise defined herein shall have the meanings ascribed
to them in the Credit Agreement (as defined below). 



        WHEREAS,
the Assignee, InfoTech USA, Inc., a New Jersey corporation (the “Borrower”),
Assignor and Information Technology Services, Inc., a New York corporation, are parties to
that certain Credit and Security Agreement, dated as of the date hereof (as the same may
hereafter be amended, modified, supplemented or restated from time to time, the
“Credit Agreement”); 



        WHEREAS,
the Borrower is a wholly-owned subsidiary of the Assignor and Applied Digital Solutions,
Inc., a Missouri corporation (“ADS”), owns a majority of the issued and
outstanding shares of capital stock of the Assignor; 



        WHEREAS,
pursuant to that certain Guaranty by Corporations, dated as of the date hereof, made by
Assignor and ITSI in favor of Assignee (the “Guaranty”), Assignor has
unconditionally guaranteed the prompt payment and performance in full of all Obligations
under the Credit Agreement; 



        WHEREAS,
pursuant to that certain Commercial Loan Agreement, dated June 27, 2003, between ADS and
the Assignor (the “Loan Agreement”), ADS executed and delivered to the Assignor
that certain Term Note, dated June 27, 2003, in the principal amount of $1,000,000 (the
“Term Note”), and, as security for the payment thereof, ADS and Assignor entered
into that certain Stock Pledge Agreement, dated June 27, 2003 (the “Stock Pledge
Agreement”), pursuant to which ADS pledged to Assignor 750,000 shares of the common
stock of Digital Angel Corporation owned by ADS, as evidenced by Certificate No. 3471 (the
“Stock Certificate”; together with the Loan Agreement, the Term Note, the Stock
Pledge Agreement, the First Amendment to Loan Documents dated as of June 29, 2004 between
ADS and the Assignor (the “First Amendment”) and all other agreements, documents
and instruments executed in connection with any of the foregoing, in each case as the same
may be amended, modified, supplemented, restated or replaced from time to time,
collectively, the “ADS Loan Documents”); and 



        WHEREAS,
as a condition to making any advances under the Credit Agreement, the Assignee is
requiring that the Assignor grant the Assignee a security interest in all of the
Assignor’s right, title and interest in and to the ADS Loan Documents. 



        Accordingly,
in consideration of the premises and in order to induce the Assignee to make advances
under the Credit Agreement, the Assignor hereby agrees for the benefit of the Assignee as
follows: 



        SECTION 1. Collateral
Assignment. The Assignor hereby pledges, collaterally assigns, transfers, and conveys
to the Assignee, its successors and assigns, for its benefit, with full recourse, and
grants to the Assignee a security interest in, all of Assignor’s right, title, and
interest in and to the following (the “Assigned Collateral”): 





             (a)    
          the Term Note; 



             (b)    
          the Stock Certificate; 



             (c)    
          the Loan Agreement; 



             (d)    
          the Stock Pledge Agreement; 



             (e)    
          the First Amendment; 



             (f)    
          all of the other ADS Loan Documents; 



             (g)    
          all interest, cash, instruments, and other property from time to time received,
          receivable, or otherwise distributed in respect of or in exchange for all or any
          part of the Assigned Collateral or any security or collateral relating to the
          ADS Loan Documents; and 



             (h)    
          all proceeds of any and all of the foregoing Assigned Collateral. 



        SECTION 2. Security for
Obligations. This Assignment (including the pledge of the Assigned Collateral made
pursuant hereto and security interests hereunder) secures the payment of all Obligations
of the Borrower now or hereafter existing under the Credit Agreement and all agreements,
documents or instruments executed in connection therewith or relating thereto,
(collectively, the “Loan Documents”), whether for principal, interest, fees,
expenses, or otherwise, and all obligations of the Assignor now or hereafter existing
under this Assignment or the Guaranty (all such obligations of the Borrower and the
Assignor being the “Secured Obligations”). Without limiting the generality of
the foregoing, this Assignment and the assignment of the Assigned Collateral made pursuant
hereto secure the payment of all amounts that constitute part of the Secured Obligations
and would be owed by the Borrower or the Assignor to the Assignee under the Credit
Agreement and the other Loan Documents or this Assignment but for the fact that they are
unenforceable or not allowable due to the existence of a bankruptcy, reorganization, or
similar proceeding involving the Borrower or the Assignor. 



        SECTION 3. Delivery of Assigned
Collateral. The Assignor shall tender immediate physical possession of the original of
each of the ADS Loan Documents to the Assignee, together with, in the case of the Term
Note, an allonge assigning the Term Note to the Assignee substantially in the form
attached hereto as Exhibit A (the “Allonge”), and, in the case of the Stock
Certificate, duly executed instruments of transfer or assignment in blank, in form and
substance satisfactory to the Assignee. 



        The
Assignee shall have no duty or obligation to enforce the Term Note or any of the other ADS
Loan Documents, protect or maintain any security for the payment of the Term Note or any
of the other ADS Loan Documents, or provide any notices required by the Term Note or any
of the other ADS Loan Documents, it being specifically acknowledged and agreed that the
Assignee shall have no duty of care in regard to the Term Note or any of the other ADS
Loan Documents or any security therefor other than the duty of the Assignee to maintain
safe physical possession of the Term Note and the other Assigned Collateral in accordance
with Section 11 hereof. 



–2–




        SECTION 4.
Representations,  Warranties and Covenants.  The Assignor represents,  warrants, and covenants as
follows:



             (a)    
          The Term Note and each of the other ADS Loan Documents has been duly authorized,
          issued, and delivered, is the legal, valid, and binding obligation of ADS and is
          enforceable against ADS in accordance with its terms. 



             (b)    
          The Assignor is and shall be the legal and beneficial owner of the Assigned
          Collateral free and clear of any lien, security interest, option, or other
          charge or encumbrance except for the security interest created by this
          Assignment. 



             (c)    
          The pledge and assignment of the Assigned Collateral pursuant to this Assignment
          creates a valid and enforceable security interest in the Assigned Collateral,
          securing the payment of the Secured Obligations, and all filings and other
          actions necessary or desirable to perfect and protect such security interest
          (including the priority thereof) have been, or, upon (i) the filing of a Uniform
          Commercial Code financing statement in the office of the Secretary of State of
          Delaware, and (ii) the obtaining of possession of all Assigned Collateral the
          possession of which is lawfully required to perfect a security interest therein,
          will have been duly taken to create a valid, enforceable, and perfected first
          priority security interest in the Assigned Collateral. 



             (d)    
          Except for the filing of the aforementioned Uniform Commercial Code financing
          statement in the office of the Secretary of State of Delaware, no consent of,
          authorization, approval, or other action by, notice to, or filing with any other
          person, entity, governmental authority or regulatory body is required for: (x)
          the pledge and assignment by the Assignor of the Assigned Collateral pursuant to
          this Assignment or for the execution, delivery, or performance of this
          Assignment by the Assignor; (y) the perfection or maintenance of the security
          interest created hereby (including the first priority nature of such security
          interest); or (z) the exercise by the Assignee of the rights provided for in
          this Assignment or the remedies in respect of the Assigned Collateral pursuant
          to this Assignment. 



             (e)    
          The Assignor has full right, power, and authority to assign all of its right,
          title, and interest in and to the Assigned Collateral and to perform all other
          obligations required hereunder. 



             (f)    
          The Assignor has previously delivered to the Assignee true, correct, and
          complete copies of any and all written agreements (and summaries of all oral
          agreements) to which it is a party that are presently in effect and that relate
          or pertain to the Assigned Collateral, and none of the terms and conditions of
          the Assigned Collateral have been varied, amended, or changed in any way except
          as stated therein. 



             (g)    
          As of the date hereof, to the Assignor’s knowledge, there is no default or
          any action, event, or condition that would, with the giving of notice, the
          passage of time, or both, constitute a default under the Term Note or any of the
          other Assigned Collateral, and the Assignor will, until the Secured Obligations
          are paid in full, notify the Assignee in writing promptly after the Assignor
          obtains knowledge or receives notice of any default or any action, event, or
          condition that would, with the giving of notice, the passage of time, or both,
          constitute such a default. 



–3–




             (h)    
          To the Assignor’s knowledge, there are no defenses to or counterclaims or
          rights of setoff against the Assignor’s rights under the Assigned
          Collateral. 



             (i)    
          Without the prior written consent of the Assignee, after the date hereof the
          Assignor shall not (i) extend the final maturity date of the Term Note or any
          other date fixed for payment of principal of the Term Note, (ii) reduce the
          amount of principal of, or interest rate under, the Term Note, (iii) cancel,
          terminate or release, or permit or consent to the cancellation, termination or
          release of, any part of the Assigned Collateral, (iv) take, permit or consent to
          any other action that could substantially interfere with the exercise of
          remedies by the Assignee under the Assigned Collateral, or (v) amend or waive
          any of the terms of, modify, settle, compromise, abate, discharge, release,
          terminate, arbitrate, set off, adjust, grant consents with respect to, waive any
          default or event of default under, or otherwise adversely affect (collectively,
          “Adjust” or “Adjustment”) the Assigned Collateral or the
          obligations of ADS or any other person thereunder in any way without the prior
          written consent of the Assignee. 



             (j)    
          Subject to the provisions of Section 12, all cash proceeds received by the
          Assignee or the Assignor (which cash proceeds shall be immediately paid over to
          the Assignee) in respect of any sale of, collection from, payment with respect
          to or realization upon all or any part of the Assigned Collateral shall be
          applied by the Assignee to pay the Secured Obligations in accordance with the
          Credit Agreement and this Assignment. 



             (k)    
          The Assignor shall promptly and diligently exercise and pursue all of its
          rights, remedies, powers, benefits, and privileges, and perform and carry out
          all of its duties, obligations, and functions with respect to the Assigned
          Collateral, unless otherwise directed by the Assignee. 



             (l)    
          The Assignor shall deliver to the Assignee, within three (3) business days of
          the receipt, sending, giving, or execution thereof, copies of all amendments,
          modifications, notices, requests, waivers, approvals and consents with respect
          to the Assigned Collateral. 



             (m)    
          The Term Note is outstanding on the date hereof in the principal amount of One
          Million Dollars ($1,000,000). 



             (n)    
          There are no conditions precedent to the effectiveness of this Assignment that
          have not been satisfied or waived. 



             (o)    
          The Assignor has, independently and without reliance upon the Assignee and based
          on such documents and information as it has deemed appropriate, made its own
          decision to enter into this Assignment. 



        SECTION 5. Further Assurances.
The Assignor agrees that, at any time and from time to time, at the expense of the
Assignor, the Assignor will promptly execute and deliver all further instruments and
documents, and take all further action, that may be reasonably necessary or desirable, or
that the Assignee may reasonably request, in order to perfect and protect any security
interest granted or purported to be granted hereby or under the Assigned Collateral or to
enable the Assignee to exercise and enforce its rights and remedies hereunder with respect
to any Assigned Collateral. 



–4–





        SECTION 6. Assignment
Immediate. This collateral assignment of the Assigned Collateral is absolute,
unconditional, and immediate and is intended to transfer and convey to the Assignee all of
the Assignor’s present right, title, and interest in, under, and to the Assigned
Collateral. 



        SECTION 7. Transfers and Other
Liens. The Assignor agrees that it will not (i) sell, assign (by operation of law or
otherwise), or otherwise dispose of, or grant any option with respect to, any of the
Assigned Collateral, or (ii) create or permit to exist any lien, security interest,
option, or other charge or encumbrance upon or with respect to any of the Assigned
Collateral, except for the security interest under this Assignment. 



        SECTION 8. The Assignee Appointed
Attorney-in-Fact. The Assignor hereby appoints the Assignee as the Assignor’s
attorney-in-fact, with full authority in the place and stead of the Assignor and in the
name of the Assignor or otherwise, from time to time in the Assignee’s discretion to
take any action and to execute any instrument that the Assignee may deem necessary or
advisable to preserve or protect its interest in the Assigned Collateral and otherwise to
accomplish the purposes of this Assignment, including, without limitation, to: (i) settle,
extend, renew, compromise, compound, exchange, or otherwise Adjust claims or security with
respect to the Assigned Collateral or in connection with any legal proceedings brought
with regard thereof; (ii) take control in any manner of any cash or non-cash items of
payment; and (iii) endorse the name of the Assignor upon any items of payment as to the
Assigned Collateral. This appointment as attorney-in-fact is irrevocable and coupled with
an interest, and shall survive the disability of the Assignor. The appointment of the
Assignee as attorney-in-fact under this Section 8, and the Assignee’s right to take
any actions under this Section 8, shall be effective (a) at any time whether or not a
Default or Event of Default has occurred or exists under the Credit Agreement, but only to
the extent necessary to effect Assignee’s rights under Section 10 hereof or (b) at
any time during a Default Period. The Assignor will indemnify and save harmless the
Assignee from and against any liability or damage that the Assignee or the Assignor may
incur in good faith in the exercise and performance of any of the powers and duties set
forth herein (other than losses, claims, costs or expenses that result from or arise out
of the gross negligence or willful misconduct of the Assignee or its officers, directors,
employees, assigns or representatives). 



        SECTION 9. Assignor to Remain
Liable: Indemnification. Notwithstanding anything to the contrary contained herein,
(a) Assignor shall remain liable under all the contracts, agreements, and documents
included in the Assigned Collateral to the extent set forth therein to perform all of its
duties and obligations thereunder to the same extent as if this Assignment had not been
executed; (b) the exercise by the Assignee of any of its rights hereunder shall not
release the Assignor from any of its duties or obligations under the contracts,
agreements, and documents included in the Assigned Collateral; and (c) the Assignee shall
have no obligation or liability under the contracts, agreements, and documents included in
the Assigned Collateral, nor shall the Assignee be obligated to perform any of the duties
or obligations of the Assignor thereunder or to take any action to collect or enforce any
claim for payment assigned hereunder, 



–5–





and the Assignor hereby agrees to defend, indemnify
and hold harmless the Assignee and its officers, directors, employees, assignees, and
representatives from any losses, claims, costs and expenses (including reasonable
attorneys fees and expenses) incurred by the Assignee or its officers, directors,
employees, Assignees, and representatives arising from any of the Assigned Collateral or
the transactions contemplated hereunder (other than losses, claims, costs or expenses that
result from or arise out of the gross negligence or willful misconduct of the Assignee or
its officers, directors, employees, assigns or representatives). 



        SECTION 10. The Assignee May
Perform. If the Assignor fails to perform any agreement contained herein (including,
without limitation, the covenant set forth in Section 4(k) hereof), the Assignee may
itself perform, or cause performance of, such agreement, whether or not a Default or Event
of Default has occurred or exists under the Credit Agreement, and the expenses of the
Assignee incurred in connection therewith shall be payable by the Assignor pursuant to
Section 13 hereof. 



        SECTION 11. The Assignee’s
Duties. The powers conferred on the Assignee hereunder are solely to preserve and
protect its interest in the Assigned Collateral and shall not impose any duty upon the
Assignee to exercise such powers. Except for the safe custody of any Assigned Collateral
in its possession and the accounting for moneys actually received by it hereunder, the
Assignee shall have no duty as to any Assigned Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or other
matters relative to any Assigned Collateral (whether or not the Assignee has or is deemed
to have knowledge of such matters), or as to the taking of any necessary steps to preserve
or protect rights against any parties or any other rights pertaining to any Assigned
Collateral. The Assignee shall be deemed to have exercised reasonable care in the custody
and preservation of any Assigned Collateral in its possession if such Assigned Collateral
is accorded treatment substantially equal to that which the Assignee accords its own
property of similar character. 



        SECTION 12.
Remedies Upon Default.  If any Event of Default shall have occurred and be continuing:



             (a)    
          The Assignee, without in any way waiving such Event of Default, at its option
          and without regard to the adequacy of security for the Secured Obligations,
          shall have, in addition to other rights and remedies provided for herein or
          otherwise available to it, the exclusive right, but not the obligation, to
          exercise all of the Assignor’s rights, powers, and privileges with respect
          to the Assigned Collateral, including without limitation the right to declare
          events of default, grant consents, approvals, extensions, permissions, and
          modifications, and to exercise any and all remedies provided for in the Assigned
          Collateral. 



             (b)    
          The Assignee may exercise in respect of the Assigned Collateral, in addition to
          other rights and remedies provided for herein or otherwise available to it, all
          the rights and remedies of a secured party on default under the Uniform
          Commercial Code in effect in the State of New York at that time (the
          “UCC”) (whether or not the UCC applies to the Assigned Collateral),
          and may also, without notice (except as specified below), sell the Assigned
          Collateral or any part thereof in one or more parcels at public or private sale;
          at any exchange, broker’s board, office of the Assignee, or elsewhere; for
          cash, on credit, or for future delivery; and upon such other terms as the
          Assignee may deem commercially reasonable. The Assignor agrees that, 




–6–




     to the
          extent notice of sale shall be required by law, at least five (5) days’
          notice to the Assignor of the time and place of any public sale or the time
          after which any private sale is to be made shall constitute reasonable
          notification. The Assignee shall not be obligated to make any sale of Assigned
          Collateral regardless of notice of sale having been given. The Assignee may
          adjourn any public or private sale from time to time by announcement at the time
          and place fixed therefor, and such sale may, without further notice, be made at
          the time and place to which it was so adjourned. 



             (c)    
          Any cash held by the Assignee as Assigned Collateral and all cash proceeds
          received by the Assignee in respect of any sale of, collection from, or other
          realization upon all or any part of the Assigned Collateral may, in the
          discretion of the Assignee, be held by the Assignee as collateral for, and may
          then or at any time thereafter be applied (after payment of any amounts payable
          to the Assignee pursuant to Section 13 hereof) in whole or in part by the
          Assignee against all or any part of the Secured Obligations in accordance with
          the Credit Agreement. Any surplus of such cash or cash proceeds held by the
          Assignee and remaining after payment in full of all the Secured Obligations
          shall be promptly paid over to the Assignor or to whosoever may be lawfully
          entitled to receive such surplus. 



        SECTION 13. Expenses. The
Assignor will upon demand therefor pay to the Assignee the amount of any and all expenses,
including the reasonable fees and expenses of its counsel, experts, and Assignees, that
the Assignee may incur in connection with: (i) the administration of this Assignment; (ii)
the custody or preservation of, or the sale of, collection from, or other realization
upon, any of the Assigned Collateral; (iii) the exercise or enforcement (whether through
negotiations, legal proceedings, or otherwise) of any of the rights of the Assignee
hereunder or under the Assigned Collateral; or (iv) the failure by the Assignor to perform
or observe any of the provisions hereof. 



        SECTION 14. Security Interest
Absolute. All rights of the Assignee and all security interests hereunder, and all
Secured Obligations of the Assignor hereunder, shall be absolute and unconditional
irrespective of: 



             
        (i)    
          any lack of validity or enforceability of the Credit Agreement or any other Loan
          Document or any other agreement or instrument relating thereto; 



             
        (ii)    
          any change in the time, manner, or place of payment of, or in any other term of,
          all or any of the Secured Obligations, or any other amendment or waiver of or
          any consent to any departure from the Credit Agreement or any other Loan
          Document including, without limitation, any increase in the Secured Obligations
          resulting from the extension of additional credit to the Borrower or otherwise; 



             
        (iii)    
          any taking, exchange, release, or nonperfection of any other collateral securing
          any or all of the Secured Obligations; 



             
        (iv)    
          any manner of application of collateral, or proceeds thereof, to all or any of
          the Secured Obligations, or any manner of sale or other disposition of any
          collateral for all or any of the Secured Obligations or any other assets of the
          Assignor; or 


–7–




             
        (v)    
          any other circumstance that might otherwise constitute a defense available to,
          or a discharge of, the Assignor or a third-party assignor. 



        SECTION 15. Amendments, Etc.
No amendment or waiver of any provision of this Assignment, and no consent to any
departure by the Assignor herefrom, shall in any event be effective unless the same shall
be in writing and signed by the Assignee, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which given. 



SECTION 16. Addresses for
Notices. All notices and other communications provided for hereunder shall be in
writing (including telecopier communication) and mailed, telecopied, delivered and
received in accordance with Section 8.3 of the Credit Agreement. 



        SECTION 17. Continuing Security
Interest; Assignments Under Loan Documents. This Assignment shall create a continuing
security interest in the Assigned Collateral and shall (i) remain in full force and effect
until the payment in full of the Secured Obligations and all other amounts payable under
this Assignment; (ii) be binding upon the Assignor, its successors and assigns; (iii)
inure to the benefit of the Assignee its successors, transferees, and assigns; and (iv) be
enforceable by the Assignee and its successors, transferees, and assigns. Without limiting
the generality of the foregoing clauses (iii) and (iv), the Assignee may assign or
otherwise transfer all or any portion of its rights and obligations under the Loan
Documents (including, without limitation, all or any portion of the Secured Obligations)
to any other person or entity to the extent permitted by, and in accordance with the
Credit Agreement, and, upon compliance with the Credit Agreement such other person or
entity shall thereupon become vested with all the benefits in respect thereof granted to
the Assignee herein or otherwise. Upon the payment in full of the Secured Obligations and
all other amounts payable under this Assignment, and subject to compliance with Section
3.9 of the Credit Agreement, the security interest granted hereby shall terminate and all
rights to the Assigned Collateral shall revert to the Assignor. Upon any such termination,
the Assignee will, at the Assignor’s expense, return to the Assignor such of the
Assigned Collateral as shall not have been sold or otherwise applied to the Secured
Obligations pursuant to the terms hereof and execute and deliver to the Assignor such
documents as the Assignor shall reasonably request to evidence such termination. 



        SECTION 18. Governing Law;
Terms. This Assignment shall be governed by and construed in accordance with the laws
of the State of New York, except as required by mandatory provisions of law and except to
the extent that the validity or perfection of the security interest hereunder, or remedies
hereunder, in respect of any particular Assigned Collateral are governed by the laws of a
jurisdiction other than the State of New York. Unless otherwise defined herein, terms
defined in Article 9 of the UCC are used herein as therein defined. 



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–8–





        IN
W1TNESS WHEREOF, the Assignor has caused this Assignment to be duly executed and delivered
by its officer thereunto duly authorized as of the date first above written. 


	  	INFOTECH USA, INC., a Delaware corporation 




	 	By: 	  /s/ J. Robert Patterson
 
	 	Name:	 J. Robert Patterson
	 	Title:	 Chief Financial Officer, Vice President and
 Treasurer






	  	WELLS FARGO BUSINESS CREDIT, INC., a Minnesota corporation




	 	By: 	  /s/ Sal Mutone
 
	 	Name:	 Sal Mutone
	 	Title:	 Vice President
















–9–